Pakistan has fallen short on key IMF fiscal conditions as provincial governments failed to meet cash surplus targets and the FBR missed critical revenue benchmarks for the $7 billion bailout package’s second review.
According to the Ministry of Finance’s fiscal operations report, Pakistan could only meet two out of five key IMF fiscal conditions for the second review. Provinces failed to generate the committed Rs1.2 trillion cash surplus during the last fiscal year, largely due to a surge in expenditures.
Similarly, the Federal Board of Revenue (FBR) missed its total revenue collection target of Rs12.3 trillion and failed to achieve Rs50 billion in collections from retailers under the Tajir Dost Scheme. The provinces collectively generated a cash surplus of Rs921 billion, falling Rs280 billion short of the IMF target.
Punjab, with Rs4 trillion in revenue, spent Rs3.6 trillion, generating a surplus of Rs348 billion. Sindh reported a surplus of Rs283 billion, while Khyber Pakhtunkhwa (KP) and Balochistan posted surpluses of Rs176 billion and Rs113 billion, respectively. However, statistical discrepancies and off-the-book expenditures affected overall figures.
Despite these shortfalls, Pakistan achieved a primary budget surplus of Rs2.7 trillion, surpassing the IMF’s target of Rs2.4 trillion. This marks the country’s second consecutive primary surplus and the highest in 24 years. The overall fiscal deficit was reduced to 5.4% of GDP, below the 5.9% target, due to tight expenditure controls.
IMF Fiscal Conditions Review Unlikely to Delay Next Loan Tranche
Although Pakistan missed several revenue and surplus targets, the government is expected to navigate the upcoming IMF review talks smoothly. Progress on other critical benchmarks, including maintaining a primary surplus and managing fiscal discipline, strengthens Pakistan’s position ahead of negotiations for the next $1 billion tranche.
Federal revenues remained Rs1.2 trillion short of covering interest and defence spending, leading the government to rely on additional borrowing for other expenditures. Interest payments reached Rs8.9 trillion, while defence expenses rose to Rs2.2 trillion during the last fiscal year.
Non-tax revenues provided some relief, with collections exceeding Rs5.6 trillion, boosted by a Rs1.22 trillion petroleum levy after recent rate hikes. Provincial tax collections exceeded IMF expectations by Rs58 billion, totaling Rs979 billion. However, the FBR’s revenue collection under the Tajir Dost Scheme remained negligible.
Federal development spending under the Public Sector Development Programme (PSDP) increased to Rs1.05 trillion, 43% higher than the previous year. Meanwhile, subsidies were kept in check, with releases limited to 49% of the allocated budget.
Planning Minister Ahsan Iqbal has proposed revising the National Finance Commission (NFC) Award by introducing new performance benchmarks to ensure effective use of provincial funds. The Ministry of Finance emphasized that its primary current expenditures remained within targets despite rising interest costs.